Why We Are Cautious About Bristol-Myers Squibb

Bristol-Myers Squibb’s (NYSE:BMY) stock has run up almost 15% since May in the anticipation that its oncology drug Nivolumab will be a blockbuster when it eventually comes out in the market. The drug is a new type of cancer treatment that enables the human immune system to attack and destroy cancers. It caught the market’s attention when the company announced the primary results of its clinical trials. The results suggest that Nivolumab was able to reduced tumors in the majority of melanoma patients, when combined with Yervoy, another drug belonging to Bristol. The news was particularly interesting because the clinical trial data released by Bristol-Myers out-shined the results of competing drugs from Merck (NYSE:MRK) and Roche (PINK:RHHBY). (You can read more about the clinical trial data here)

While this is great news for Bristol, and we are optimistic about the future of its oncology division, we believe that caution is necessary because the introduction of Nivolumab is still some time away and has not yet cleared all the needed regulatory approvals. The drug entered Phase III trials in 2012, and could take up to three years to get all the necessary approvals based on historical averages. Further, the Nivolumab + Yervoy combination study results that caused so much enthusiasm in the markets are from a Phase I study, which means that there could still a lot of pitfalls that the drug could succumb to. According to Bristol’s own SEC filings, 95% of the compounds that enter Phase I usually fail to achieve regulatory approval. ^[1] Even if successful, the combination would start contributing to the company’s bottom-line meaningfully only in the next decade because the typical the R&D process for a drug takes 13 years or longer, phase I being one of the initial stages. ^[1]

See our full analysis for Bristol-Myers Squibb

Cardiovascular Division Not Meeting Expectations

On the other hand, the company’s cardiovascular division seems to be facing some hiccups. The division contributes around 20% of the value in the company according to our estimates, and a large chunk of it comes from the anticipated success of Eliquis – a new generation anticoagulant drug that Bristol markets in partnership with Pfizer (NYSE:PFE).

Eliquis was approved by the FDA in the U.S. in December 2012, and is expected to reach peak sales of around $4 billion in the next 4-5 years to become the next best-selling cardiovascular drug. The drug is important for Bristol because it has the potential to fill the revenue-hole that was created in its income statement when Plavix went off patent protection last year. (Read more about Plavix here)

However, it seems that the drug is currently not doing as well as was expected from it. During a recent investor conference, Pfizer executive Geno Germano agreed that Eliquis’ sales have boon disappointing. ^[2] The reason for low sales is believed to be stiff competition from competing drugs like Pradaxa (belonging to Boehringer Ingelheim) and Xarelto (belonging to Bayer and Johnson & Johnson). ^[3]

To counter the competitive threat, it seems that Bristol and Prizer are soon going to start a direct-to-consumer advertising campaign to boost the sales of the drug. ^[3] We will be closely watching the developments in this space closely and shall modify our forecasts as more events unfold. Currently our outlook on the sales of Eliquis is cautiously optimistic.

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1. SEC Filings page 9, BMS [↩] [↩]
2. Pfizer’s potential stars Eliquis, Xeljanz see sluggish sales, Fierce Pharma, June 14, 2013 [↩]
3. Pfizer executive says sales of Eliquis, Xeljanz slower than anticipated: report, First Word Pharma, June 13, 2013 [↩] [↩]